Pair option trading or Statistical Arbitrage is the practice of predicting which fixed stock pair will perform better than the other. When you pick the winning pair you receive gains. They payout has to be made before the trade. The payout is dependent on the kind of pairs you choose. The trade will expire out of the money or the trade expires in the money depending on which you either don’t receive a return or receive a return. You can choose your own expiry time. The returns on pair option training are high. A floating type pair option will give you a 680% return while a fixed pair will give you a 86% return.
The online broker Stockpair offers pair option trading. With a huge platform, Stockpair is the go-to place for pair options trading. Pair options attempts to be market neutral. Pair trading follows that logic that traders will find two stocks that tend to move similarly. The trader would then buy one of the stock and sell the other short thereby making good profit. Pair trading is done with options, futures, and future articles.
Here are some easy tips to Pair options trading:
- Look closely before you choose your pair: It is important to first do your homework and understand thoroughly what pair options trading is. With the help of several books and website you can understand and learn to pick and choose a pair that moves similarly. You can pick a number of pairs to understand what makes them move up or down. You can look at charts to confirm visually which stocks correlate and move together.
- You can start a dummy account: may websites online will allow you to start a dummy account where you can practice learning to perform pair options trading. When you do this you can practice your understanding of similar pairs and create a price ratio chart. When you actually do pair options trading you will create a price ratio chart as well. This is can be done automatically for you by most charting platforms.
- Buy one stock and sell on a stock chart: You will do this when the price ratio line moves to second deviation. Often traders what to go long with the lagging stock and short with the over performer.
You can also get yourself the support of a good trading signals company that provides you with free trading signals to help you better understand pair options and the market. Good luck trading!
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December 14, 2011 | by John Greener |